World Is Falling Into Economic Calamity

A confluence of recent events has been pressuring emerging countries’ equity markets. Over the past couple of years emerging and developed markets have been moving in lockstep, but the two have diverged recently.

What’s behind this underperformance in emerging markets stocks? It seems that a number of simultaneous developments has contributed to the sell-off:

1. The spectacular decline in shares of Apple has put downward pressure on some of its Asian suppliers and related technology firms.

The above three assets are “very sensitive” when it comes to the growth/inflation story. Each of them have been making a series of lower highs since May of 2011! Now they are breaking support lines of rising wedges and pennant patterns.

Paper Gold & Silver Will Likely Fall Further, Here’s Why

Recent rail trends have weakened substantially from very strong levels earlier this year. The latest weekly reading came in at 3.3% year over year, but continues a trend of low single digit readings. This latest data brings the 12 week average to 4.4%. That’s still a healthy level, but well off the March high of 3.6%. In this environment I guess any growth is good growth so this has to go down as a moderate positive for the economy even though the trend is negative.

Attorney general Petros Clerides said the assembly must have a say on the accord, which will inflict huge losses on depositors at Laika and Bank of Cyprus. The Orthodox Church of Cyprus expects to lose €100m, crippling its charities.

It is unclear whether the government can muster a majority as popular fury erupts. The Communists and Socialists have been vehement critics of the deal.

Green MP George Perdikis told the Cyprus Mail that he would vote against it to uphold the “freedom” of his country. “It is a crime to deliver Cyprus into the hands of the troika and allow it to become a colony.”

The Cypriot parliament threw out the original plan for a levy on guaranteed deposits below €100,000. A rejection of the final deal might exhaust patience in Berlin and Frankfurt. The country would be forced out of the euro within days if the European Central Bank cuts off support.

The pan-EU Socialist bloc in the European Parliament said the “neo-colonial” handling of Cyprus had been disgrace and called for the Troika to be disbanded, while the Liberal bloc demanded for a probe to find out who was responsible the “disastrous” decision to target small savers.

It is now official: “We will be mindful of unintended negative side effects stemming from extended periods of monetary easing.” This is how the G-20, the most important country grouping today, put it in the communique they issued Friday night. But what exactly are they talking about?

It all started with the difficulties that most advanced economies faced in generating adequate growth and employment after the 2008 global financial crisis. Rather than catalyze the political system into action, this “new normal” worsened polarization. Feeling a “moral obligation” to step in, central banks (led by the Federal Reserve) embarked on a series of bold and unprecedented policies – or what became known as “QE infinity.”

QE, or quantitative easing, refers to the use of central banks’ balance sheets to manipulate financial prices. It follows the flooring of policy interest rates at zero for a prolonged period of time, and also commitment to keep them there for a lot longer.

The idea is simple: manipulate key financial markets in order to “push” investors to take more risk, thus also stimulating spending and investing. With time, improving fundamentals would validate the artificial prices, thus also allowing central banks to exit.

German Finance Minister Wolfgang Schaeuble said that central banks around the world can only create breathing space for governments to carry out policies that put their economies back on a sustainable track.

“Mr. Bernanke too can only buy time, he can’t solve the problems in substance of the economy,” Schaeuble told reporters in Washington, where he is attending a meeting of Group of 20 finance chiefs. The U.S. “is aware that they need a credible medium-term strategy.”

Japan’s conduct of monetary policy shows that it was “right and urgently necessary” to take a closer look at liquidity as a potential source of economic instability, Schaeuble said, referring to a G-20 decision taken at a meeting in Moscow in February. Schaeuble said “we wish them a lot of luck that it works” and that there are signs economic growth figures are improving. Still, the tool must be used carefully and “can’t substitute for the necessary medium-term measures.”

These were the prophetic words spoken to Aaron DeHoog, Financial Publisher of Newsmax Media, by famed economist and New York Times best-selling author Robert Wiedemer, at a private dinner in Palm Beach, Fla.

“You see, the medicine will become the poison,” Wiedemer continued, as he pulled a worn manila envelope from his briefcase.